When Investing, Try Thinking Outside the Box

Sometimes it pays to look beyond the obvious when it comes to investing.

That means adding some exotic investments to a portfolio laden with blue-chip stocks and Treasury bonds. Think platinum and pipelines.

ENLARGE

Jason Schneider

The popularity of blue chips has driven the Dow Jones Industrial Average to levels not seen since before the financial crisis. And investors so crave Treasurys that yields have plunged and remain close to historic lows. The way to find bargains is where others aren't and that means going off the beaten path.

Platinum

Now is one of the rare times in history when an ounce of platinum is cheaper than an ounce of gold. Platinum is going for $1,712 an ounce, compared with $1,775 for an ounce of gold.

Market observers say platinum prices are down due to unwarranted worry over the health of the global economy, while gold has held up as a haven.

But that relationship may change. If the economy warms up, so will demand for platinum—likely pushing up the price. The metal is used to make catalytic converters for automobiles. When more cars are made, more platinum is needed.

"The price is very attuned to the economic cycle," says Matthew Turner, a strategist at Mitsubishi Corp. in London.

In addition, intensifying supply problems could further boost prices, Mr. Turner says. Most of the world's platinum comes from South Africa and failing infrastructure in that country could curtail production, he says. The last time a major supply shock happened, in 2008, platinum prices catapulted to over $2,000 an ounce.

For investors looking to get their hands on some physical platinum, the U.S. Mint manufactures platinum coins, which it sells through approved dealers. You should buy only those coins whose price is based on the metal content, not the coins' finish. The latter can be harder to resell.

Another option is an exchange-traded fund that holds bars of physical platinum, such as the ETFS Physical Platinum Shares.

Shipping Stocks

Shipping stocks have had a rough trip lately as a slew of new vessels has pushed freight rates down. But the supply of vessels looks set to moderate in the near future—meaning there could be profits for those with the guts to take the plunge.

Freight rates for hauling dry products such as coal and iron ore have fallen near multi-decade lows, as measured by the Baltic Dry Index. In some cases, the cost of a voyage is about the same as the revenue.

"I think freight rates will bounce to more healthy levels," says Natasha Boyden, a shipping analyst at Cantor Fitzgerald in New York, but she adds that it could take a year before we see a solid recovery.

For investors willing to ride some bumpy waves, Ms. Boyden recommends Navios Maritime . She says it has good long-term contracts (meaning the company is less exposed to the gyrations in freight rates), a strong management team and healthy balance sheet. Navios trades at $4 a share, but she says the stock is worth $6.

Ms. Boyden also likes Diana Shipping, which has $400 million cash on its balance sheet and long-term contracts.

Oil and Gas Pipelines

With oil prices topping $100 a barrel, investing in oil-and-gas producers may seem like a no-brainer. But rather than betting the farm on energy prices going higher—even if it looks likely amid the standoff with Iran—consider pipelines instead. With pipeline stocks, you can benefit from the volume of the energy piped—regardless of which direction prices are headed.

"Pipelines are like toll roads," says Avi Feinberg, an analyst at Morningstar in Chicago, meaning the operator gets paid for the volume of what passes through the tube.

You can invest in pipeline producers through master limited partnerships (MLPs), which run the pipelines. MLPs don't pay federal income taxes, says Mr. Feinberg. Instead, the people who own the partnership units, or shares—meaning investors—are taxed based on the distributions from the partnership. Still, there can be good profits in MLPs.

Watch out for the MLPs that get paid to process energy and also sometimes get a stake in the value of that resulting product, says Mr. Feinberg. "We tend to like MLPs that have steady fee-based cash flows as a high percentage of their revenue." Among his picks:
Energy Transfer Equity
,
which runs a long-haul pipeline and currently yields around 5.8%.

Apartment Buildings

Now that the job market has started to improve, apartment vacancy rates are falling and rents are getting higher.

Sounds like a good time to be a landlord. The big problem: It typically requires millions of dollars to buy even a small multifamily property.

One way around this is by investing in real-estate investment trusts, which own, operate and lease apartment complexes.

As investors anticipated the apartment-sector recovery, REIT prices have surged lately, but there are still some bargains out there, says David Toti, an analyst at Cantor Fitzgerald in New York.

REIT shares can be purchased just like other stocks. But because of their trust structure, REITs don't pay taxes on profits as long as they distribute most of their earnings to shareholders. Instead, investors must pay taxes on the distributions. The distributions are taxed in a variety of ways.

Foreign Currencies

With Europe's debt crisis continuing to put pressure on the euro and dollar, investors may want to look to currencies with a better chance of appreciation.

Mark McCormick, a currency strategist at Brown Brothers Harriman in New York, likes the currencies of commodity-producing countries like Australia, Norway and Canada. Those countries are earning lots of cash on the back of a surge in materials prices.

Want some actual hard currency? Commerce Bank of Missouri sells packets of foreign notes. Minimum amounts vary, but the bank keeps most major currencies in stock, says Craig Stevenson, international manager at the Kansas City, Mo., branch. Or they can order it.

The downside: You must buy the currency in person at a bank branch. To sell the currency back to Commerce, you'll need to become a customer of the bank.

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